Club Capital Blog

Cash Is King! -  How To Boost Your Cash Management Skills

One factor that influences the success of a company is the business owner’s ability to manage cash.  What is the amount of money that your business generates?  How do you deploy these funds?  Does your agency make a cash surplus from operational activities?

Your cash flow statement will provide the answers to these questions. Remember that a cash flow statement is different from your profit and loss statement. The former indicates your firm’s cash inflows and outflows. Your profit and loss statement, on the other hand, includes non-cash entries as well.


So, for example, if you have not paid a vendor a sum of, say, $1,000, by the end of the accounting period (say, the end of a month) for supplies that have already been consumed, your P&L statement will still record the expense. That’s how accrual accounting works. But your cash flow statement will only include the amount of $1,000 on the date of actual payment.  If you didn't pay the $1,000 bill within the accounting period, the cash flow statement will not show the "expense."


How to read a cash flow statement:

It’s important to remember that the entries in a cash flow statement are restricted to those that affect your cash balance. As your business generates cash from different sources, a cash flow statement is usually divided into three sections:

  1. Cash flows from operating activities - this tells you how much cash your business operations generate and the amount that you spend towards these activities. The sum that remains is the cash flow from operating activities.  This is, in essence, the P&L (Income Statement) portion of your cash flow.
  2. Cash flows from investing activities - if you have bought any new equipment or purchased a financial asset, it will find a place in this section. Similarly, an inflow from selling an asset will be recorded here.  Think equipment, business vehicles, and building mortgage payments (if owned by the agency).
  3. Cash flows from financing activities - this section includes inflows from bank borrowing or a fresh infusion of capital.  Think lines or credit, loans, owner's contributions, etc.


 Learn more about the 3 Primary Financial Statements for your business here.


Improving your company’s cash management:

Here are four ways to help you handle your cash resources better:

  1. Anticipate your need for cash - plan your cash requirements for the next month/quarter/year. This involves preparing a projected cash flow statement. Carrying out this exercise will help to avoid surprises. You will be able to plan the deployment of extra funds as well as arrange for money well before you need it.  
    1. Club Capital clients: if you do not know how to adjust your budget or don't have one at all, please reach out to your accountant to book some time with them and get this setup!
  2. Reduce expenses - study your expenditure to identify costs that don’t contribute to the bottom line. Are there any expenses that you can eliminate or delay?
  3. Maintain a cash reserve - if your business is continually running short of cash, it’s time that you create a reserve. This should be large enough to take care of your running expenses for three to six months. You can decide on the exact amount, but you must have a sufficiently large buffer to see you through any unexpected crisis.
  4. If you need to borrow, start your search early - if you plan to raise funds from a bank or a non-traditional lender, begin the loan application process well in advance. Delaying this task may limit your options and lead to borrowing at an unnecessarily high cost.



You can pull a cash summary statement from your accounting platform by:

Logging in --> Selecting "Reports" from the blue navigation bar --> Select "All Reports" --> Select "Cash Summary"


The bottom line: 

Small business owners should pay an adequate level of attention to both the P&L statement as well as the cash flow statement. Carefully monitoring your cash position will allow you to focus on those activities that directly affect the amount of money that your company possesses.

Remember that cash is king! Having an adequate level of funds at your disposal will give you confidence as well as the flexibility to try out the new ideas that could take your business to the next level.

Need additional help or want to learn more about Club Capital?

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By Micah Cannon | November 21, 2018 | | 1 Comment

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